Introduction to Technical Analysis

Technical Analysis Is where one looks for patterns; in essence one is attempting to predict the future though the examination and analysis of past price movements and patterns.  Market technicians do not waste time trying to measure a security’s intrinsic value; instead the focus is examining charts and using specific tools to identify patterns that predict future price movements.  Technical analysis when used properly can help identify market tops and bottoms; it does not predict the price date of the event but can be used to determine topping or bottoming action.

In lay man’s terms

Fundamental analyst would go to fast food place and study how fast and how efficiently the place handled each order and he would also analyse the number of people that came into that place on a given day before deciding on whether he should buy it or not.  A technician would simply sit outside and study the people shopping there, he would not care what the cost of the product was or how many were sold, he would be looking for specific patterns and based on past analysis would use this data to determine whether he should buy or not.  

You can turbo charge your result by technical analysis with contrarian investing and Mass psychology, something that is done very professionally at Tactical Investor and the VIP Futures Service  

 
Now let’s look at some of the most popular technical analysis tools.  We will examine them all, so please drop by here as we update this page. This is a work in progress. We are also going to provide a source for some of the best technical analysis tools and will list this all on one page.

Relative Strength Index  

It was developed by Welles Wilder and described in detail in a book he published in 1978 called “new Concepts in technical trading. It is a momentum based oscillator that measures the magnitude of stocks upwards moves over a given period of time against the magnitude of losses over that same period. The standard value is usually 14, but one can set it anywhere from 0 to 100. The value is calculated by using the last 14 periods.  

MACDS 

It stands for moving average convergence/Divergence and was created by Gerald Appel.  It is a trend indicator that follows the relationship between two moving averages; these values are usually preset at 26 and 12.  It is calculated by subtracting the 26 day moving average of a given stock, index, etc from its 12 day moving average.  It is used to determine buy and sell points in a given security.

Coming up soon we will look at very important moving averages, stochastics, Esoteric cycles, multi time frame analysis, standard deviation analysis, phase shift cycles and much much more.